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Is this merely another instance of investors not being able to stand prosperity? Or are they possessed of an intuitive knowledge that this time it's the real thing? (Forgive us, we haven't turned mystic, but we have learned that when things seem inexplicable, they probably are, until someone comes up with a persuasive argument why they're not.)

Gosh knows there's no shortage of reasons for skepticism about the spirited rally that sent stocks sharply higher to start the year off. Just cock your ear and listen: the decidedly mixed picture of regional economies, including the ragged likes of Philly, Chicago, and Kansas City. Nor has the consumer yet to fully register the disappointment that's sure to spring from thinner paychecks and higher prices for food and fuel, or corporations from lagging new orders, the pinch on margins, and a host of other costly annoyances.

But there's the buoyant stock market, which we've typically found to be in good times and bad a better investment guide than the run-of-the-Street strategist or portfolio pro, and regret not having paid it more heed back in the dark, wintry days of 2009, when it began its long slog back from the depths of the Great Recession. On Friday equities extended their most recent winning streak to the longest they have enjoyed since 2004, and along the way the S&P stuck its head above 1500 for the first time since the closing weeks of 2007. And it did so despite the sour performance of poor old
Appleaapl -1.5351744876157316%Apple Inc.U.S.: NasdaqUSD124.43
-1.94-1.5351744876157316%
/Date(1427835600323-0500)/
Volume (Delayed 15m)
:
40410221AFTER HOURSUSD124.46
0.02999999999998690.02410994133247609%
Volume (Delayed 15m)
:
1601964
P/E Ratio
16.657295850066934Market Cap
736073426681.742
Dividend Yield
1.5108896568351684% Rev. per Employee
2153110More quote details and news »aaplinYour ValueYour ChangeShort position
(ticker: AAPL) as its magical iPhones came up with the wrong numbers.

Not that there wasn't sufficient cause to encourage the bulls in the various and sundry reports on the economy that came tumbling out last week and a positive deluge of likely more of the same slated for release this week. The Conference Board published its economic indices for December, and its leading index was up 0.5% over the previous month, while its coincident index and lagging index were up 0.2% and 0.7%, respectively. Granted that Sandy and that unpredictable devil, the weather, furnished a lot of noise in the numbers, they were still distinctly positive.

Ditto the surprising contraction in new claims for unemployment insurance: They dropped to 330,000, atop a 37,000 plummeting the preceding week, to a new low since January 2008. Yeah, we know that jobs are supposed to be a lagging indicator, not a leading one, but by any measure in this slowpoke economy, it's the key to consumer sentiment and trumps wherever in the indicator hierarchy tradition has accorded it.

Which helps explain what Mr. Greenspan would call our conundrum. Reflexively, our impulse is to utter a hurrah to the spunky market for confounding the received wisdom and our own caution that stocks have run too fast, too far. But that's so, well, conventional that it feels more like a cop-out than a conviction. So perhaps the happy (we hope) medium is to let your profits run until they start to go the other way.

After all, markets rarely fall out of a bed in one fell swoop as they did in 1987 and, more recently, the turn of the century, so there's usually plenty of time to cut and run. (Again: We hope.)

OUR OLD BUDDY AND ex-Barron's staffer Floyd Norris had a nice column in the New York Times on the recovery of housing. We take note of it not only because we think it's very much worth a read but also because it offers a plausible explanation for the revived bullishness that has chipped in to goose the stock market. A feature of the piece was an interview with Karl Case, co-founder of the S&P/Case-Shiller housing index, which functions as a kind of bible of the home-building business. Case, who's an emeritus professor at Wellesley College, observed that "we had 48 months of depression in the housing industry. Housing has brought us out of every recession in the past and it was not available." But now -- and this is a big "but" -- there's no question that we have turned what seems to be a head wind into a tail wind.

As Floyd comments, the recovery is far from robust, with inventories of unsold houses at the lowest in decades, home prices up in most markets, and sales picking up but still rather anemic. But our point here is not to claim that housing has enjoyed a full-blown recovery but rather that the view it has turned the corner (to use Case's phrase) has proved contagious and so has the inference to be drawn: If housing was the big depressant to the recovery it now bids fair to provide the necessary stimulus to get the economy off its butt.

We buy that, more or less. And the more is in the ultimate effect a solid rebound in housing would exert on the overall economy; the less is in the timing. On the latter score, it still seems early days before housing gets back on track. Although we can't see, as the unreconstructed bears do, housing back in the dumps, we do feel, along with Mark Hanson, no stranger to this space and a sharp-eyed follower of the industry, that the draggy action in new-home sales and the extended valuations of the home-building stocks tend to be overlooked in assessing the enthusiasm for housing.

Mark is a hard man to please, as evidenced by his insistence on what would make him turn bullish on new-home sales, which he strongly believes is a critical element in sizing up the future for housing. To wit: "much more income, serious job growth, much lower taxes, lower rates, and less multifamily building." The short answer to that question is seemingly "nothing." But our somewhat less-severe criteria would settle for a sustained upswing in new-home sales and all the implicit benefits that would entail.

Perhaps the best way we've come across to size up the outlook for the economy as a whole -- and that most emphatically includes housing -- is that of Bank of America Merrill Lynch in its latest Economic Weekly: "In the face of a significant shock, the U. S. recovery has arguably outperformed history. We look for a stronger rebound…next year."

Merrill also has some interesting takes on housing. Among other things, the extraordinary drying up in the supply of housing reflects the punishing contraction in the inventory post the housing bust. From 2009 to 2011, starts barely exceeded demolitions. The clogged pipeline of mortgages in foreclosure or deeply in deficit still needs to be processed, and will be, but gradually, thanks to the pressure on the banks and delays from states that have in place "a judicial foreclosure process.''

FOR A FEW BLESSED MOMENTS, we thought we could lay aside the worry that the euro would go kaput and take the European Union with it. If nothing else, that would leave us free to concentrate our concerns on the more familiar woes closer to home. You know, like the postponed wrangle over the debt ceiling and the Super Bowl. Alas, appears out of the blue on our screen one recent morning a special report by BCA Research bearing the headline "Searing Sun: Japan-China Conflict Heating up."

It started off benignly enough by conjecturing that "stimulative economic policy should provide a significant tail wind for both the Japanese and the Chinese economy in 2013." Nothing alarming about that, eh? It then proceeded to explain that "the leadership transition in China would 'incentivize' [what a terrible word] policy makers to keep economic conditions favorable as they did during the previous power transfer in 2002. Meanwhile, the newly elected government in Japan is responding to populist demands for stronger economic growth by unleashing both monetary and fiscal stimulus."

But then the report rambles on: "A major risk to bullish market conditions in East Asia is the elevated potential for an armed skirmish between China and Japan. Leaders in both countries have a political reason to stand strong on foreign-policy issues that stoke nationalism, and that dynamic would lead to diplomatic and military mistakes."

Our first reaction to the prospect of a war between China and Japan was admittedly an ungenerous one. We thought of the old tale of the frontier wife in the Old West who sat on a stump watching her husband wrestling with a bear. "Go to it, bar," she supposedly shouted, and quickly added, "Go to it, husband." But then we firmly decided to read no more. A taste of the grape is one thing. But why get agitated over a simple skirmish?